Green supply chain network design with stochastic demand and carbon price

TLDR: A two-stage stochastic programming model to design a green supply chain in a carbon trading environment is presented and it is found that the supply chain configuration can be highly sensitive to the probability distribution of the carbon credit price.

Abstract: This paper presents a two-stage stochastic programming model to design a green supply chain in a carbon trading environment. The model solves a discrete location problem and determines the optimal material flows and the number of carbon credits/allowances traded. The study contributes to the existing literature by incorporating uncertainty in carbon price and product demand. The proposed model is applied to a real world case study and the numerical results are carefully analyzed and interpreted. We find that the supply chain configuration can be highly sensitive to the probability distribution of the carbon credit price. More importantly, we observe that carbon price and budget availability for supply chain reconfiguration can both have a positive but nonlinear relationship with greening of the supply chain.